What do we mean by “liquidity rallies?” There is a certain amount of economic foundation to this market action. The government pumps money into the “system” and it finds its way to Wall Street in order to leverage speculation for quick profits.

As the stock market rallies, it appears to many observers that the market is predicting a grandiose upswing in the economy. As it turns out, though, the speculative fervor generated by easy money only makes stock prices go higher — it does not fix the economic woes. Once the economic data refuses to improve, the market realizes that it has overshot on the upside and another, usually slower, bear market unfolds.

But this fascinating article is not just on 30’s:

There have really only been three former markets that suffered such severe dislocations that they are similar to the current one. One, of course, is 1937 and its aftermath (and as we’ll see shortly, there is an even larger comparison to 1929 and its aftermath). Another is the 1974 bear market and subsequent trading. A third is the much-older 1907 “Rich Man’s Panic” and aftermath.

Please take the time to read this incredible article in its entirety. You will be glad you did. The graphs alone are worth the look.